the full development of this possibility of crises, I am sorry to say, you are going to have to read Volumes II and III, along with the three volumes of Theories of Surplus Value, because, as Marx points out, we need to know a lot more before we can explain in detail where crises might come from. For our purposes here, though, it’s worth noticing how the “the conversion of things into persons and the conversion of persons into things” echoes the fetishism argument from the first chapter.
At the heart of Marx’s objection to Say’s law lies the following argument. I start with C, I go to M, but there is no force that compels me to spend the money immediately on another commodity. I can, if I want, simply hold on to the money. I might do that, for example, if I felt there was some insecurity in the economy, if I was worried about the future and wanted to save. (What would you rather have in your hand in difficult times: a particular commodity or the universal equivalent?) But what happens to the circulation of commodities in general if everybody suddenly decides to hold on to money? The buying of commodities would cease and circulation would stop, resulting in a generalized crisis. If everybody in the world suddenly decided not to use their credit cards for three days, the whole global economy would be in serious trouble. (Recall how we were all urged to get out our credit cards after 9/11 and get back to shopping.) Which is why so much effort is put toward getting money out of our pockets and keeping it circulating.
In Marx’s time, most economists, including Ricardo, accepted Say’s law (210, n. 42). And partly due to the influence of the Ricardians, the law dominated economic thinking throughout the nineteenth century and up until the 1930s, when there was a generalized crisis. Then followed the (typical, to this day) chorus of economists saying things like, “There would be no crisis if only the economy would perform according to my textbook!” The facts of the Great Depression made a dominant economic theory that denied the possibility of generalized crisis untenable.
Then, in 1936, John Maynard Keynes published his General Theory of Employment, Interest and Money, in which he totally abandons Say’s law. In his Essays in Biography (1933), Keynes reexamines the history of Say’s law and what he considered its lamentable consequences for economic theorizing. Keynes made much of something he called the liquidity trap, in which some ruction occurs in the market, and those with money get nervous and hold on to it rather than invest or spend it, driving the demand for commodities down. Suddenly people can’t sell their commodities. Uncertainty increasingly troubles the market, and more people hang on to their money, the source of their security. Subsequently, the whole economy just goes spiraling downward. Keynes took the view that government had to step in and reverse the process by creating various fiscal stimuli. Then the privately hoarded money would be enticed back into the market.
As we’ve seen, Marx similarly dismisses Say’s law as foolish nonsense in Capital, and since the 1930s there has been a dialogue about the relationship between Marxian and Keynesian theories of the economy. Marx clearly sides with those political economists who did argue for the possibility of general crises—in the literature of the time, these economists were referred to as “general glut” theorists—and there were relatively few of them. The Frenchman Sismondi was one; Thomas Malthus (of population-theory fame) was another, which is somewhat unfortunate, because Marx could not abide Malthus, as we will later see.
Keynes, on the other hand, praises Malthus inordinately in Essays in Biography but scarcely mentions Marx—presumably for political reasons. In fact, Keynes claimed he never read Marx. I suspect he did, but even if he didn’t, he was surrounded by people like the economist Joan Robinson, who did read Marx and certainly told Keynes about Marx’s rejection of Say’s law. Keynesian theory dominated economic thinking in the postwar period; then came the anti-Keynesian revolution of the late 1970s. The monetarist and neoliberal theory that is predominant today is much closer to an acceptance of Say’s law. So the question of the proper status of Say’s law is an interesting one worthy of further inquiry. What matters for our purposes here, though, is Marx’s emphatic rejection of it.
The next step in Marx’s argument is to plunge into an analysis of the circulation of money. I won’t spend much time on the details of this, because Marx is basically reviewing the monetarist literature of the time. The question he is posing here is: how much money does there need to be in order to circulate a given quantity of commodities? He accepts a version of what is called the “quantity theory of money,” similar to that of Ricardo. After several pages of detailed discussion, he arrives at a supposed law: the quantity of the circulating medium is “determined by the sum of the prices of the commodities in circulation, and the average velocity of the circulation of money” (219). (The velocity of circulation of money is simply a measure of the rate at which money circulates—e.g., how many times in a day a dollar bill changes hands.) He had earlier noted, however, that “these three factors, the movement of prices, the quantity of commodities in circulation, and the velocity of the circulation of money, can all vary in various directions under different conditions” (218). The quantity of money needed therefore varies a great deal, depending on how these three variables shift. If you can find some way to speed up the circulation, then the velocity of money accelerates, as happens through credit-card use and electronic banking, for example: the greater the velocity of money, the less money you need, and conversely. Plainly, the concept of the velocity of money is important, and to this day the Federal Reserve goes to great pains to try to get accurate measures of it.
Considerations on the quantity theory of money bring him back to the argument I laid out at the beginning of this chapter—that when it comes to the circulation of commodities, little bits of gold are inefficient. It is much more efficient to use tokens, coins, paper or, as happens nowadays, numbers on a computer screen. But “the business of coining,” Marx says, “like the establishing of a standard measure of price, is an attribute proper to the state” (221–2). So the state plays a vital role in replacing metallic money commodities with tokens, symbolic forms. Marx illustrates this with brilliant imagery:
The different national uniforms worn at home by gold and silver as coins, but taken off again when they appear on the world market, demonstrate the separation between the internal or national spheres of commodity circulation and its universal sphere, the world market. (222)
The significance of the world market and world money comes back in at the end of this chapter.
Locally, the quest for efficient forms of money becomes paramount. “Small change appears alongside gold for the payment of fractional parts of the smallest gold coin” which then leads to “inconvertible paper money issued by the state and given forced currency” (224). As soon as symbols of money emerge, many other possibilities and problems arise:
Paper money is a symbol of gold, a symbol of money. Its relation to the values of commodities consists only in this: they find imaginary expression in certain quantities of gold, and the same quantities are symbolically and physically represented by the paper. (225)
Marx also notes “that just as true paper money arises out of the function of money as the circulating medium, so does credit-money take root spontaneously in the function of money as the means of payment” (224). The money commodity, gold, is replaced by all manner of other means of payment such as coins, paper moneys and credit. This happens because a weight of gold is inefficient as a means of circulation. It becomes “socially necessary” to leave gold behind and work with these other symbolic forms of money.
Is this a logical argument, a historical argument or both? Certainly, the history of the different monetary forms and the history of state power are intricately intertwined. But is this necessarily so, and is there some inevitable pattern to those relations? Until the early 1970s, most paper moneys were supposedly convertible into gold. This was what gave the paper moneys their supposed stability or, as Marx would describe it, their relationality to value. Converting money into gold was, however, denied to private persons in many countries from the 1920s onward and mainly retained for exchanges between countries to balance currency accounts. The whole system broke down in the late 1960s and early 1970s, and we now have a purely symbolic system with no clear material base—a universal money commodity.
So what relationship exists today between the various paper moneys (e.g., dollars, euros, pesos, yen) and the value of commodities? Though gold